<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) August 21, 1996
TRANSACTION SYSTEMS ARCHITECTS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-25346 47-0772104
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
330 South 108th Avenue, Omaha, Nebraska 68154
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (402) 390-7600
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
FORM 8-K
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On July 15, 1996, Transaction Systems Architects, Inc. ("TSA" or the
"Company") entered into a Stock Exchange Agreement (the "Stock Exchange
Agreement") with Grapevine Systems, Inc., a Nebraska corporation ("Grapevine")
and the principal shareholders of Grapevine. Pursuant to a statutory share
exchange under the Stock Exchange Agreement, the Company is to acquire all of
the issued and outstanding shares of Grapevine common stock, in exchange for
shares of TSA Class A Common Stock.
The total number of shares of TSA Class A Common Stock to be issued to
shareholders of Grapevine in connection with the share exchange is 370,000
shares, subject to adjustment in the event that the average per share closing
price of the Company's Class A Common Stock on the Nasdaq National Market for
the five business days after the Registration Statement covering the TSA Class A
Common Stock to be issued in the share exchange is declared effective by the
Securities and Exchange Commission ("Average Closing Price") is less than $30.00
per share or more than $40.00 per share. The Registration Statement was
declared effective by the Securities and Exchange Commission on August 16, 1996.
If the Average Closing Price is less than $30.00 per share, then the total
number of shares of TSA Class A Common Stock to be issued in the share exchange
will be determined by dividing $11,100,000 (which is 370,000 x $30.00) by the
Average Closing Price. If the Average Closing Price is greater than $40.00 per
share, then the total number of shares of TSA Class A Common Stock to be issued
in the share exchange will be determined by dividing $14,800,000 (which is
370,000 x $40.00) by the Average Closing Price.
Consummation of the share exchange which is scheduled for September 13,
1996 is subject to certain conditions, including the approval by the holders of
a two-thirds majority of the Grapevine voting stock.
Grapevine develops, markets and supports a broad line of software products
and services primarily focused on high availability and on-line transaction
processing systems worldwide. Solutions from Grapevine typically combine both
professional services and product software components.
2
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(a) Financial statements of businesses acquired.
The following financial statements of Grapevine Systems, Inc. are
filed with this report:
Page
----
Independent Auditors' Report 5
Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996
(unaudited) 6
Statements of Operations for the years ended December 31, 1993, 1994 and
1995 and the six months ended June 30, 1995 (unaudited) and 1996
(unaudited) 7
Statements of Changes in Stockholders' Equity for the year ended
December 31, 1993, 1994 and 1995 and the six months ended
June 30, 1996 (unaudited) 8
Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995 and the six months ended June 30, 1995 (unaudited) and 1996
(unaudited) 9
Notes to Financial Statements 10 - 17
(b) Pro forma financial information.
The following unaudited pro forma consolidated financial statements
are filed with this report:
Pro Forma Consolidated Balance Sheet as of June 30, 1996 19
Pro Forma Consolidated Statement of Operations for the year ended
September 30, 1993 20
Pro Forma Consolidated Statement of Operations for the year ended
September 30, 1994 21
Pro Forma Consolidated Statement of Operations for the year ended
September 30, 1995 22
Pro Forma Consolidated Statement of Operations for the nine months
ended June 30, 1996 23
Notes to Unaudited Pro Forma Consolidated Financial Statements 24
3
<PAGE>
(c) Exhibits.
2.09* Stock Exchange Agreement by and among the Company, Grapevine
Systems, Inc. and certain principal shareholders of
Grapevine Systems, Inc., dated as of July 15, 1996
23.05 Consent of Deloitte & Touche LLP
____________________
* Incorporated by reference to the exhibit of the same number to the
Registrant's Registration Statement No. 333-09811 on Form S-4.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TRANSACTION SYSTEMS ARCHITECTS, INC.
Dated: August 21, 1996 By: /s/ Gregory J. Duman
-------------------------------
Gregory J. Duman
Chief Financial Officer
(Principal Financial Officer)
4
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Grapevine Systems, Inc.
We have audited the accompanying balance sheets of Grapevine Systems, Inc. as of
December 31, 1994 and 1995, and the related statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1994 and 1995,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1995 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
February 9, 1996
5
<PAGE>
GRAPEVINE SYSTEMS, INC.
BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------- -------------
ASSETS 1994 1995 1996
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,464 $ 8,660 $ 2,144
Accounts receivable 629,097 821,131 1,085,704
Costs and estimated earnings in excess of
billings on uncompleted contracts (Note B) 16,280 29,550 -
Income taxes receivable 62,811 - -
Prepaid expenses 8,391 33,573 25,055
------------ ------------ ------------
Total current assets 720,043 892,914 1,112,903
------------ ------------ ------------
PROPERTY AND EQUIPMENT:
Furniture and fixtures 107,357 122,266 129,266
Equipment 472,022 564,143 732,697
Leasehold improvements 12,976 12,975 12,975
------------ ------------ ------------
592,355 699,384 874,938
Accumulated depreciation and amortization (369,071) (472,082) (530,677)
------------ ------------ ------------
Total property and equipment 223,284 227,302 344,261
------------ ------------ ------------
PRODUCT DEVELOPMENT, net of accumulated
amortization of $412,651, $696,290,
and $853,757 (unaudited), respectively 672,777 774,946 726,902
------------ ------------ ------------
$ 1,616,104 $ 1,895,162 $ 2,184,066
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank line of credit (Note C) $ 295,000 $ 250,000 $ 360,000
Note payable (Note D and E) - 100,000 200,000
Current portion of capital lease
obligations (Note F) 11,810 24,453 55,402
Accounts payable 108,171 122,018 204,031
Accrued expenses 62,482 182,680 154,380
Billings in excess of costs and estimated
earnings on uncompleted contracts (Note B) 40,180 40,400 6,250
Deferred revenue 61,645 126,424 77,429
Deferred income taxes (Note G) 132,306 105,733 211,091
------------ ------------ ------------
Total current liabilities 711,594 951,708 1,268,583
------------ ------------ ------------
DEFERRED INCOME TAXES (Note G) 202,755 235,762 125,345
------------ ------------ ------------
LONG-TERM DEBT:
Capital lease obligations, less current
portion (Note F) 9,930 8,088 85,485
------------ ------------ ------------
Total long-term debt 9,930 8,088 85,485
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES (Note H and J)
STOCKHOLDERS' EQUITY (Note H):
Common stock, Class A, voting, $.004 par
value, 1,937,125 shares authorized 6,180 6,180 6,180
Common stock, Class B, nonvoting, $.004 par
value, 562,875 shares authorized 2,251 2,251 2,251
Additional paid-in capital 114,692 117,343 124,930
Retained earnings 626,432 635,387 628,345
Less common stock held in treasury:
Class A (32,830) (34,565) (34,565)
Class B (15,671) (22,232) (16,533)
Nonvested employee stock compensation (9,229) (4,760) (5,955)
------------ ------------ ------------
Total stockholders' equity 691,825 699,604 704,653
------------ ------------ ------------
$ 1,616,104 $ 1,895,162 $ 2,184,066
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See notes to financial statements.
6
<PAGE>
GRAPEVINE SYSTEMS, INC.
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------- ----------------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Professional service fees $ 3,053,919 $ 3,404,691 $ 4,288,498 $ 1,954,377 $ 2,525,933
Product license and maintenance fees 296,684 404,940 516,552 193,652 433,388
------------ ------------ ------------ ------------ ------------
Gross revenue 3,350,603 3,809,631 4,805,050 2,148,029 2,959,321
------------ ------------ ------------ ------------ ------------
OPERATING COSTS AND EXPENSES:
Cost of revenues 1,405,979 1,582,708 2,544,105 1,146,150 1,470,943
Research and development technical staff 291,293 414,122 431,808 172,593 333,604
Sales and marketing 819,718 968,597 1,024,984 464,240 698,794
General and administrative 567,660 713,601 738,932 363,917 442,499
------------ ------------ ------------ ------------ ------------
Total operating costs and expenses 3,084,650 3,679,028 4,739,829 2,146,900 2,945,840
------------ ------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 265,953 130,603 65,221 1,129 13,481
------------ ------------ ------------ ------------ ------------
OTHER EXPENSE (INCOME):
Interest expense 17,470 18,513 49,867 21,862 25,665
Interest income (77) (2,189) (35) (44) (83)
------------ ------------ ------------ ------------ ------------
Other expense - net 17,393 16,324 49,832 21,818 25,582
------------ ------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE
INCOME TAXES 248,560 114,279 15,389 (20,689) (12,101)
PROVISION (CREDIT) FOR INCOME
TAXES (Note G) 98,517 47,780 6,434 (8,650) (5,059)
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 150,043 $ 66,499 $ 8,955 $ (12,039) $ (7,042)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
See notes to financial statements.
7
<PAGE>
GRAPEVINE SYSTEMS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------------------------------
CLASS A CLASS B ADDITIONAL
---------------------------- ---------------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1993 63,150 $ 6,315 18,000 $ 1,800 $ 84,661 $ 409,890
Issuance of Class B common stock - - 3,000 300 27,677 -
Repurchase of Class A common stock - - - - - -
Repurchase of Class B common stock - - - - - -
Amount vested during 1993 - - - - - -
1993 net income - - - - - 150,043
----------- ---------- ---------- ---------- ----------- -----------
BALANCE, December 31, 1993 63,150 6,315 21,000 2,100 112,338 559,933
Stock split 1,515,600 - 504,000 - - -
Issuance of Class B common stock - - 4,125 16 2,354 -
Conversion of Class A common stock
to Class B common stock (33,750) (135) 33,750 135 - -
Repurchase of Class B common stock - - - - - -
Amount vested during 1994 - - - - - -
1994 net income - - - - - 66,499
----------- ---------- ---------- ---------- ----------- -----------
BALANCE, December 31, 1994 1,545,000 6,180 562,875 2,251 114,692 626,432
Issuance of Class B common stock - - - - 2,651 -
Repurchase of Class A common stock - - - - - -
Repurchase of Class B common stock - - - - - -
Amount vested during 1995 - - - - - -
1995 net income - - - - - 8,955
----------- ---------- ---------- ---------- ----------- -----------
BALANCE, December 31, 1995 1,545,000 6,180 562,875 2,251 117,343 635,387
Issuance of Class B common stock
(unaudited) - - - - 7,587 -
Repurchase of Class B common stock
(unaudited) - - - - - -
Amount vested during 1996 (unaudited) - - - - - -
1996 six month net loss (unaudited) - - - - - (7,042)
----------- ---------- ---------- ---------- ----------- -----------
BALANCE, June 30, 1996 (Unaudited) 1,545,000 $ 6,180 562,875 $ 2,251 $ 124,930 $ 628,345
----------- ---------- ---------- ---------- ----------- -----------
----------- ---------- ---------- ---------- ----------- -----------
<CAPTION>
TREASURY STOCK
---------------------------------------------------------- NON-VESTED
CLASS A CLASS B EMPLOYEE
----------------------------- --------------------------- STOCK
SHARES AMOUNT SHARES AMOUNT COMPENSATION TOTAL
BALANCE, January 1, 1993 10,400 $ (36,239) 2,100 $ (4,220) $ (22,582) $ 439,625
Issuance of Class B common stock - - (1,850) 3,082 (31,059) -
Repurchase of Class A common stock 600 (3,281) - - - (3,281)
Repurchase of Class B common stock - - 730 (3,774) - (3,774)
Amount vested during 1993 - - - - 28,012 28,012
1993 net income - - - - - 150,043
----------- ---------- ---------- ---------- ----------- -----------
BALANCE, December 31, 1993 11,000 (39,520) 980 (4,912) (25,629) 610,625
Stock split 264,000 - 23,520 - - -
Issuance of Class B common stock - - (5,675) 947 (3,317) -
Conversion of Class A common stock
to Class B common stock (33,750) 6,690 33,750 (6,690) - -
Repurchase of Class B common stock - - 19,900 (5,016) - (5,016)
Amount vested during 1994 - - - - 19,717 19,717
1994 net income - - - - - 66,499
----------- ---------- ---------- ---------- ----------- -----------
BALANCE, December 31, 1994 241,250 (32,830) 72,475 (15,671) (9,229) 691,825
Issuance of Class B common stock - - (19,850) 5,003 (7,654) -
Repurchase of Class A common stock 4,500 (1,735) - - - (1,735)
Repurchase of Class B common stock - - 30,265 (11,564) - (11,564)
Amount vested during 1995 - - - - 12,123 12,123
1995 net income - - - - - 8,955
----------- ---------- ---------- ---------- ----------- -----------
BALANCE, December 31, 1995 245,750 (34,565) 82,890 (22,232) (4,760) 699,604
Issuance of Class B common stock
(unaudited) - - (37,500) 7,159 (14,746) -
Repurchase of Class B common stock
(unaudited) - - 3,775 (1,460) 113 (1,347)
Amount vested during 1996 (unaudited) - - - - 13,438 13,438
1996 six month net loss (unaudited) - - - - - (7,042)
----------- ---------- ---------- ---------- ----------- -----------
BALANCE, June 30, 1996 (Unaudited) 245,750 $ (34,565) 49,165 $ (16,533) $ (5,955) $ 704,653
----------- ---------- ---------- ---------- ----------- -----------
----------- ---------- ---------- ---------- ----------- -----------
</TABLE>
See notes to financial statements.
8
<PAGE>
GRAPEVINE SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------- ----------------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 150,043 $ 66,499 $ 8,955 $ (12,039) $ (7,042)
Adjustments to reconcile net income (loss)
to net cash flows from operating activities:
Depreciation and amortization expense 306,518 259,203 386,652 157,177 216,063
Nonmonetary exchange of equipment - - (50,000) - -
Vesting of stock under employee stock
incentive plan 28,012 19,717 12,123 4,184 13,551
Changes in assets and liabilities:
Accounts receivable (251,965) 10,094 (192,034) (224,586) (264,573)
Costs and estimated earnings in excess
of billings on uncompleted contracts 5,783 (6,230) (13,270) 16,280 29,550
Income taxes receivable (15,786) (44,224) 62,811 52,274 -
Prepaid expenses (5,197) 3,729 (25,182) (8,952) 8,518
Accounts payable 26,375 14,598 13,847 100,262 82,013
Accrued expenses 21,599 3,298 120,198 54,940 (28,300)
Billings in excess of costs and estimated
earnings on uncompleted contracts (32,467) 40,180 220 (35,155) (34,150)
Deferred revenue 21,798 39,847 64,779 (18,186) (48,995)
Deferred income taxes 98,517 47,780 6,434 (8,650) (5,059)
----------- ------------ ------------ ----------- ------------
Net cash flows from operating activities 353,230 454,491 395,533 77,549 (38,424)
----------- ------------ ------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (68,563) (84,425) (26,893) (4,171) (44,056)
Additions to product development (355,986) (357,513) (385,808) (273,322) (109,424)
----------- ------------ ------------ ----------- ------------
Net cash flows from investing activities (424,549) (441,938) (412,701) (277,493) (153,480)
----------- ------------ ------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from bank line of credit 75,000 20,000 55,000 35,000 110,000
Payments on long-term debt (2,324) (28,647) (19,337) (7,349) (23,152)
Purchase of treasury stock (7,055) (5,016) (13,299) - (1,460)
Net borrowings on notes payable - - - 170,000 100,000
----------- ------------ ------------ ----------- ------------
Net cash flows from financing activities 65,621 (13,663) 22,364 197,651 185,388
----------- ------------ ------------ ----------- ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (5,698) (1,110) 5,196 (2,293) (6,516)
CASH AND CASH EQUIVALENTS - Beginning of Period 10,272 4,574 3,464 3,464 8,660
----------- ------------ ------------ ----------- ------------
CASH AND CASH EQUIVALENTS - End of Period $ 4,574 $ 3,464 $ 8,660 $ 1,171 $ 2,144
----------- ------------ ------------ ----------- ------------
----------- ------------ ------------ ----------- ------------
</TABLE>
See notes to financial statements.
9
<PAGE>
GRAPEVINE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Grapevine Systems, Inc. (the Company) is an Omaha,
Nebraska, based professional software company that provides development
services, product software, and consulting services for projects, large and
small, to companies primarily in the United States who are engaged in a
wide variety of industries. The Company specializes in providing
programming services on Stratus hardware.
Grapevine Systems, Inc. has developed special concentrations in the areas
of application development, communication and performance analysis.
BASIS OF PRESENTATION OF UNAUDITED INTERIM FINANCIAL STATEMENTS - The
balance sheet as of June 30, 1996 and the related statements of operations
and cash flows for the six months ended June 30, 1995 and 1996, are
unaudited. However, in the opinion of management, the interim financial
statements include all adjustments, which consist of only normal recurring
adjustments, necessary for fair presentation of the Company's financial
position and results of operations. The unaudited results of operations
for the six months ended June 30, 1996, are not necessarily indicative of
the results which may be expected for the entire year.
REVENUE RECOGNITION - The Company recognizes revenues upon the delivery of
its products and services for the majority of its contracts. The Company
has certain long-term contracts in which revenues are recognized using the
percentage of completion method of accounting. Under this method, the
percentage of completion is determined by relating the actual cost to date
to the current estimated total cost. The asset, "costs and estimated
earnings in excess of billings on uncompleted contracts," represents the
excess of contract revenue recognized to date over actual billings to date.
The liability, "billings in excess of costs and estimated earnings on
uncompleted contracts," represents the excess of billings to date over the
contract revenue recognized to date.
NEW ACCOUNTING PRONOUNCEMENTS - The Company has evaluated the impact that
will result from adopting SFAS No. 121, ACCOUNTING FOR IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, which will
be required to be adopted in the first quarter of 1996. The Company does
not expect the impact from adoption to be material to its financial
statements.
PRODUCT DEVELOPMENT - Product development costs related to the Company's
software products are recognized as expenses when incurred until
technological feasibility has been established for the product.
Thereafter, up to the general release of the products to the customer, all
product development costs are capitalized. Such costs are then amortized
on a straight-line basis over the remaining estimated economic life of the
product, not to exceed three years. At each balance sheet date, the
unamortized product development cost is analyzed for net realizable value
by estimating future gross revenues by product reduced by future
estimated costs of completing and disposing of that product.
During the year ended December 31, 1993, 1994 and 1995 and the six months
ended June 30, 1996, $355,986, $357,513, $385,808 and $109,424 (unaudited)
of product development costs were capitalized, respectively. Research and
development expenses incurred prior to capitalization of product costs were
$647,278, $771,638, $817,616, $445,915 (unaudited) and $443,028 (unaudited)
for the years ended December 31, 1993, 1994 and 1995 and the six months
ended June 30, 1995 and 1996, respectively.
PROPERTY AND EQUIPMENT - Property and equipment is stated at cost and
includes the cost of equipment leased by the Company under capital leases.
10
<PAGE>
Depreciation on property and equipment is provided utilizing accelerated
methods over the following ranges of estimated useful lives:
LIFE IN YEARS
Furniture and fixtures 7
Equipment 5-7
Leasehold improvements 31-1/2
Equipment under capital lease 3-7
DEFERRED REVENUE - Deferred revenue primarily relates to amounts received
on maintenance contracts. Revenue is recognized ratably over the term of
the contract.
INCOME TAXES - Deferred income taxes have been provided in the financial
statements to record appropriate amounts relating to temporary differences
for income tax return and financial statement purposes. The Company uses
the cash basis of accounting for income tax purposes, and the accrual basis
of accounting for financial statement purposes. The Company follows
Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME
TAXES.
CASH FLOW REPORTING - For purposes of the statements of cash flows, the
Company considers all temporary investments purchased with a maturity of
three months or less to be cash equivalents.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------------- -------------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash paid during the year for:
Interest on borrowings $ 15,463 $ 20,522 $ 48,113 $ 25,945 $ 18,364
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Income taxes paid (refunded) $ 25,347 $ 51,002 $ (72,205) $ (49,200) $ 2,036
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Schedule of non-cash financing
activities:
Employee compensation paid
through employee stock
incentive plan (Note H):
Book value of Class B
common stock shares issued $ 31,059 $ 3,317 $ 7,654 $ - 14,746
Book value of Class B
common stock shares vested (28,012) (19,717) (12,123) (4,184) (13,438)
--------- --------- --------- --------- ---------
$ 3,047 $ (16,400) $ (4,469) $ (4,184) $ 1,308
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Schedule of non-cash investing
activities:
Acquisition of property in
exchange for capital lease
obligation $ 8,395 $ 26,315 $ 30,137 $ 30,137 $ 131,498
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Acquisition of property in
exchange for services
rendered $ - $ 3,081 $ 50,000 $ - $ -
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
11
<PAGE>
In 1995, the Company received title to a computer with a fair value of
$50,000. In exchange for this computer, the Company provided consulting
services. In 1995, the Company recognized $50,000 of revenue on this
transaction.
In 1991, the Company received title to a mainframe computer with a fair
value of $220,000. In exchange for this computer the Company agreed to
complete development of certain software as well as honor a maintenance
agreement with a vendor. In 1993, the Company recognized $27,000 of
revenue on this transaction.
STOCK SPLIT - On November 18, 1994 the Company amended its Articles of
Incorporation for a 25 to 1 stock split. The amendment increased the
authorized capital stock from 100,000 shares at $.10 par value to 2,500,000
shares at $.004 par value. The Corporation then issued 25 shares of Class
A and Class B common stock at $.004 per share in exchange for each
outstanding share of Class A and Class B common stock at $.10 per share.
The Company also converted 33,750 shares of Class A common stock to Class B
common stock at $.004 per share, from each of the respective classes
Treasury stock.
RECLASSIFICATIONS - Certain amounts in the 1993 and 1994 financial
statements have been reclassified to conform to the 1995 presentation
format.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principals requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
those estimates.
B. LONG-TERM CONTRACTS IN PROGRESS
Information with respect to contracts in progress is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------- ----------
1994 1995 1996
(UNAUDITED)
<S> <C> <C> <C>
Costs incurred and estimated earnings
on uncompleted contracts $ 16,280 $ 69,550 $ 22,500
Less billings to date 40,180 80,400 28,750
------------ ------------ -----------
$ (23,900) $ (10,850) $ (6,250)
------------ ------------ -----------
------------ ------------ -----------
These balances are included in the accompanying balance sheets under the following captions:
DECEMBER 31, JUNE 30,
------------------------------------- ----------
1994 1995 1996
(UNAUDITED)
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 16,280 $ 29,550 $ -
Billings in excess of costs and
estimated earnings on uncompleted
contracts 40,180 40,400 6,250
------------ ------------ -----------
$ (23,900) $ (10,850) $ (6,250)
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
12
<PAGE>
C. BANK LINE OF CREDIT
The line of credit consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------------- -------------
1994 1995 1996
(UNAUDITED)
<S> <C> <C> <C>
$500,000 revolving line of credit with a bank,
due August 15, 1996, payments of interest
at the bank's base rate of 10.75% at
December 31, 1995, and 10.75% at June 30,
1996 (unaudited), due monthly, secured by all
Company assets and guarantees by certain
officers and shareholders of the Company $ 295,000 $ 250,000 $ 360,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
In connection with the line of credit the Company has agreed to certain
covenants which, among other things, require total stockholders' equity to
remain above $250,000, minimum debt to net worth, and current ratio
requirements. At December 31, 1995, the Company was in violation of
several covenants, all which have been waived by the bank. At June 30,
1996, the Company was in violation of several covenants, all of which have
been waived by the bank.
The line of credit is subject to a maximum borrowing base of 80% of
accounts receivable outstanding less than 90 days. At December 31, 1995
and June 30, 1996, $500,000 was available on the line of credit, of which
$250,000 and $360,000 (unaudited) was outstanding.
D. NOTE PAYABLE
The term loan consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------- --------------
1994 1995 1996
(UNAUDITED)
<S> <C> <C> <C>
Note payable with a bank, due August 12,
1996, with interest at 10.75% at
December 31, 1995 and 10.50% at June 30,
1996 (unaudited), due along with principal
at maturity, secured by all Company assets
and guarantees by certain officers and
shareholders of the Company $ - $ 100,000 $ 200,000
----- ----------- -----------
----- ----------- -----------
</TABLE>
E. STOCKHOLDER NOTES PAYABLE
Stockholder notes payable of $18,000 were paid off in 1994.
13
<PAGE>
F. CAPITAL LEASE OBLIGATIONS
Capital lease obligations were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------- -------------
1994 1995 1996
(UNAUDITED)
<S> <C> <C> <C>
Capital lease obligations, effective interest
rates ranging from 8.5% to 10.75% $ 21,740 $ 32,541 $ 140,887
Less current portion 11,810 24,453 55,402
---------- ---------- -----------
Long-term capital lease obligations $ 9,930 $ 8,088 $ 85,485
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
G. INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- ---------------------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal $ - $ - $ - $ - $ -
State - - - - -
Deferred 98,517 47,780 6,434 (8,650) (5,059)
---------- ---------- --------- ----------- -----------
$ 98,517 $ 47,780 $ 6,434 $ (8,650) $ (5,059)
---------- ---------- --------- ----------- -----------
---------- ---------- --------- ----------- -----------
</TABLE>
Total tax expense for the year varies from the amount which would be
provided by applying the statutory income tax rate to earnings before
income taxes. The major reasons for this difference (expressed as a
percentage of pre-tax income) are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------- -----------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Statutory rate 34.0% 34.0% 34.0% 34.0% 34.0%
State income tax effect 5.1% 5.51% 5.51% 5.51% 5.51%
Other 0.5% 2.29% 2.29% 2.29% 2.29%
------ ------ ------ ------ ------
39.6% 41.8% 41.8% 41.8% 41.8%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
14
<PAGE>
The net deferred income tax liability resulting from reporting revenue and
expenses in different periods for tax and financial reporting purposes is
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1994 1995
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforward $ 18,530 $ 62,190
Income tax credits 101,120 116,521
Accounts payable 45,111 52,262
Other 59,486 127,118
------------ ------------
Total 224,247 358,091
------------ ------------
Valuation allowance (38,644) (48,082)
------------ ------------
Deferred tax liabilities:
Accounts receivable (230,463) (285,236)
Product development costs (262,383) (303,422)
Other (27,818) (62,846)
------------ ------------
Total (520,664) (651,504)
------------ ------------
Net deferred income tax liability $ (335,061) $ (341,495)
------------ ------------
------------ ------------
At December 31, 1995, the Company had the following tax net operating losses:
Expiration Federal State
Year 2009 $ 26,793 $ 84,597
Year 2010 115,355 115,355
</TABLE>
H. EMPLOYEE STOCK INCENTIVE PLAN
In 1988, the Company established an employee stock incentive plan to
provide the employees of the Company with an opportunity to share in the
growth of the Company on a voluntary basis.
Under the current plan, the employees are not required to pay for the stock
but instead those choosing to participate receive the stock as
compensation. The stock is subject to buy-sell agreements which give the
Company right of first refusal to repurchase the stock at book value under
certain conditions as well as other restrictions.
The stock is issued at its net book value, which the Board of Directors
has determined to approximate market value, and ownership vests over three
years from the date of issue. Compensation to the employee, equal to the
net book value of the stock, is recognized by the Company as the ownership
vests.
15
<PAGE>
The Company has authorized 562,875 shares of Class B non-voting common
stock for issuance under this plan. During fiscal year 1993, 1994, 1995
and the six months ended June 30, 1996, the Company issued 121,250, 9,800,
19,850, and 10,000 (unaudited) shares under the plan, respectively. The
Company also issued 27,500 (unaudited) shares of Class B non-voting common
stock as compensation to certain individuals during the six months ended
June 30, 1996. The Company repurchased 18,250, 19,900, 30,265, and 3,775
(unaudited) shares of the stock issued under the plan at a cost of $3,774,
$5,016, $11,564, and $1,460 (unaudited) as of December 31, 1993, 1994,
1995, and the six months ended June 30, 1996, respectively. Of the
remaining 486,610 shares (unaudited) at June 30, 1996 issued under the
plan, 472,157 (unaudited) have vested with participating employees. If
the Company decides to repurchase these vested shares, a contingent
liability exist to the Company upon repurchase of $182,814 at
December 31, 1995. The above shares have been restated to reflect the
25 to 1 stock split that occurred in 1994.
In addition, the Company issued 60,000 and 31,250 shares of Class A voting
common stock under the plan during 1988 and 1992, respectively. No shares
were issued under the Plan during 1993, 1994, or 1995. The Company
repurchased 15,000, -0-, 4,500 and -0- (unaudited) of such shares at a cost
of $3,281, $-0-, $1,735 and $-0- (unaudited) as of December 31, 1993, 1994,
1995 and the six months ended June 30, 1996, respectively. Of the
remaining 61,750 shares issued under the plan, 61,750 have vested with
participating employees. If the Company decides to repurchase these
vested shares, a contingent liability exist to the Company upon
repurchase of $24,280 at December 31, 1995. The above shares have been
restated to reflect the 25 to 1 stock split that occurred in 1994.
I. DEFINED CONTRIBUTION PLAN
The Company adopted a 401(k) Defined Contribution Plan on January 1, 1993.
The Plan year ends December 31. Employer contributions are discretionary.
Employees may contribute up to 10% of their compensation subject to an
annual limit established by the Internal Revenue Service. For the years
ended December 31, 1993, 1994 and 1995 and the six months ended June 30,
1995 and 1996 (unaudited), the Company elected not to make a contribution
to the Plan.
J. COMMITMENTS
The Company leases office space under an operating lease. Total rent
expense amounted to $154,854, $184,515, $186,663, $92,591 (unaudited) and
$99,112 (unaudited) for the years ended December 31, 1993, 1994 and 1995
and the six months ended June 30, 1995 and 1996, respectively.
The future minimum rental payments under the operating leases as of
December 31, 1995 are as follows:
1996 $ 117,137
1997 58,568
-----------
$ 175,705
-----------
-----------
In addition to the basic annual rent noted above, the Company is required
to pay a portion of the direct expenses of the building through "additional
rent". The direct expenses charged back to the Company are capped at an
annual increase of 5%. The Company estimates the additional rent cap for
1996 will be approximately $81,200.
16
<PAGE>
At December 31, 1995, the Company has entered into a 36 month lease
agreement to acquire computer equipment. This computer equipment will be
treated as a capital lease with a fair value of $96,336. The Company had
not yet received the equipment as of December 31, 1995 and, accordingly,
has not recorded this agreement in the accounting records of the Company at
that date.
The Company has issued Class A Common Stock to the founders and certain
officers which gives the Company right of first refusal to repurchase the
stock at book value under certain conditions as well as other restrictions.
At December 31, 1995, 1,237,500 shares were outstanding and have vested.
If the Company decides to repurchase these vested shares, a contingent
liability exist to the Company under repurchase of $486,585 at
December 31, 1995.
K. MAJOR CUSTOMERS
The Company has major customers who have accounted for a significant
portion of revenues over the three years ended December 31, 1995. Sales to
major customers were $1,209,352, $1,166,752, $1,948,418, $1,068,393
(unaudited) and $1,693,589 (unaudited) which represents 39%, 34%, 44%, 56%
(unaudited) and 61% (unaudited) of total revenues for the years ended
December 31, 1993, 1994, 1995 and the six months ended June 30, 1995 and
1996, respectively. The major customers for 1996 were not the same as
those for 1995, 1994 and 1993.
L. SUBSEQUENT EVENTS (UNAUDITED)
On July 15, 1996, the Company entered into a merger agreement whereby all
of the common stock of the Company will be exchanged for a specified number
of common stock shares of Transaction Systems Architects, Inc. in
accordance with the merger agreement. The merger will be accounted for as
a pooling of interests transaction.
17
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements give
effect to the share exchange pursuant to the Stock Exchange Agreement dated
July 15, 1996 between TSA and Grapevine. The pro forma consolidated balance
sheet assumes that the share exchange occurred on June 30, 1996. The pro
forma consolidated statements of operations assume that the share exchange
occurred as of October 1, 1992. The share exchange will be accounted for as
a pooling of interests. In addition, the pro forma consolidated statements
of operations for the year ended September 30, 1995 and the nine months ended
June 30, 1996 give effect to TSA's acquisition of substantially all of the
net assets of TXN Solution Integrators (TXN) as if it occurred October 1,
1994. The TXN acquisition occurred on June 3, 1996 and was accounted for
under the purchase method of accounting. The pro forma consolidated
financial statements presented herein are shown for illustrative purposes
only and are not necessarily indicative of the future financial position or
future results of operations of the Company, or of the financial position or
results of operations of the Company that would have actually occurred had
the transactions been in effect as of the date or for the periods presented.
The Grapevine financial information was derived by segregating audited annual
financial numbers into the four quarters ended for the respective periods and
summarizing this quarterly information into the pro forma periods shown.
18
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED, IN THOUSANDS AND U.S. DOLLARS)
<TABLE>
<CAPTION>
TSA Grapevine Pro Forma Pro Forma
Historical Historical Adjustments Combined
------------ ------------ ------------ ------------
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 22,946 $ 2 $ $ 22,948
Receivables, net 48,943 1,086 50,029
Other 4,772 25 4,797
------------ ------------ ------------ ------------
Total current assets 76,661 1,113 0 77,774
Property and equipment, net 12,338 344 12,682
Software, net 5,083 727 5,810
Intangible assets, net 7,206 7,206
Installment receivables 1,029 1,029
Investment and notes receivable 7,275 7,275
Other 2,046 2,046
------------ ------------ ------------ ------------
Total assets $ 111,638 $ 2,184 $ 0 $ 113,822
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 741 $ 560 $ $ 1,301
Current portion of capital lease obligations 314 55 369
Accounts payable 5,654 204 5,858
Accrued employee compensation 3,861 3,861
Accrued liabilities 6,273 163 6,436
Income taxes 4,607 336 4,943
Deferred revenue 18,753 77 18,830
------------ ------------ ------------ ------------
Total current liabilities 40,203 1,395 0 41,598
Long-term debt 1,421 1,421
Capital lease obligations 126 85 211
------------ ------------ ------------ ------------
Total liabilities 41,750 1,480 0 43,230
------------ ------------ ------------ ------------
Stockholders' equity:
Common Stock 127 8 (6)(a) 129
Additional paid-in capital 93,557 119 (45)(a) 93,631
Accumulated translation adjustments (272) (272)
Accumulated deficit (23,512) 628 (22,884)
Treasury stock at cost (12) (51) 51 (a) (12)
------------ ------------ ------------ ------------
Total stockholders' equity 69,888 704 0 70,592
------------ ------------ ------------ ------------
Total liabilities and stockholders' equity $ 111,638 $ 2,184 $ 0 $ 113,822
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See notes to pro forma consolidated financial statements
19
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended September 30, 1993
(unaudited, in thousands and in U.S. dollars)
<TABLE>
<CAPTION>
TSA Grapevine Pro Forma TSA/Grapevine
Historical (b) Historical Adjustments Combined
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Software license fees $ - $ 200 $ $ 200
Maintenance fees - 111 111
Services - 2,904 2,904
------------ ------------ ------------ ------------
Total revenues - 3,215 0 3,215
------------ ------------ ------------ ------------
Expenses:
Cost of software license fees:
Software costs - 216 216
Cost of maintenance and services - 1,168 1,168
Research and development:
Research and development costs - 139 139
Selling and marketing - 818 818
General and administrative:
General and administrative costs - 556 556
------------ ------------ ------------ ------------
Total expenses - 2,897 0 2,897
------------ ------------ ------------ ------------
Operating income - 318 0 318
------------ ------------ ------------ ------------
Other income (expense):
Interest expense - (19) (19)
------------ ------------ ------------ ------------
Total other - (19) 0 (19)
------------ ------------ ------------ ------------
Income before income taxes - 299 0 299
Provision for income taxes - (118) (118)
------------ ------------ ------------ ------------
Net income $ - $ 181 $ 0 $ 181
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See notes to pro forma consolidated financial statements
20
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended September 30,1994
(unaudited, in thousands, except share and per
share amounts, and in U.S. dollars)
<TABLE>
<CAPTION>
TSA Grapevine Pro Forma TSA/Grapevine
Historical (c) Historical Adjustments Combined
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Software license fees $ 36,696 $ 296 $ $ 36,992
Maintenance fees 18,570 55 18,625
Services 15,095 3,179 (154)(d) 18,120
Hardware, net 3,702 3,702
------------ ------------ ------------ ------------
Total revenues 74,063 3,530 (154) 77,439
------------ ------------ ------------ ------------
Expenses:
Cost of software license fees:
Software costs 7,310 224 7,534
Amortization of purchased software 2,342 2,342
Purchased contracts in progress 12,398 12,398
Cost of maintenance and services 18,352 1,175 (154)(d) 19,373
Research and development:
Research and development costs 8,432 154 8,586
Charge for purchased research and development 22,712 22,712
Selling and marketing 17,761 917 18,678
General and administrative:
General and administrative costs 13,007 652 13,659
Amortization of goodwill and purchased
intangibles 834 834
------------ ------------ ------------ ------------
Total expenses 103,148 3,122 (154) 106,116
------------ ------------ ------------ ------------
Operating income (loss) (29,085) 408 0 (28,677)
------------ ------------ ------------ ------------
Other income (expense):
Interest income 416 416
Interest expense (3,042) (16) (3,058)
Other 172 172
------------ ------------ ------------ ------------
Total other (2,454) (16) 0 (2,470)
------------ ------------ ------------ ------------
Income (loss) before income taxes (31,539) 392 0 (31,147)
Provision for income taxes (1,999) (165) (2,164)
------------ ------------ ------------ ------------
Net income (loss) $ (33,538) $ 227 $ 0 $ (33,311)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income per common and equivalent share $ (1.66) $ (1.61)
------------ ------------
------------ ------------
Weighted average shares outstanding 20,208 370(a) 20,578
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See notes to pro forma consolidated financial statements
21
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended September 30, 1995
(unaudited, in thousands, except share and per
share amounts, and in U.S. dollars)
<TABLE>
<CAPTION>
TSA/
TSA Grapevine Pro Forma Grapevine TXN Pro Forma Pro Forma
Historical Historical Adjustments Combined Historical Adjustments Combined
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Software license fees $ 57,758 $ 270 $ $ 58,028 $ 2,219 $ (1,446)(e) $ 58,801
Maintenance fees 29,109 58 29,167 3,573 (741)(e) 31,999
Services 23,467 3,309 (52)(d) 26,724 4,401 (178)(e) 30,947
Hardware, net 4,554 4,554 1,046 (11)(e) 5,589
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenues 114,888 3,637 (52) 118,473 11,239 (2,376) 127,336
----------- ----------- ----------- ----------- ----------- ----------- -----------
Expenses:
Cost of software license fees:
Software costs 12,827 312 13,139 1,472 (1,457)(e) 13,154
Amortization of purchased software 3,165 3,165 123 (f) 3,288
Purchased contracts in progress 2,956 2,956 2,956
Cost of maintenance and services 26,863 1,675 (52)(d) 28,486 6,386 (66)(g) 33,887
(919)(e)
Research and development 12,323 269 12,592 12,592
Selling and marketing 29,089 985 30,074 1,148 (3)(g) 31,219
General and administrative:
General and administrative costs 17,898 753 18,651 783 (4)(g) 19,430
Amortization of goodwill and
purchased intangibles 344 344 228 (h) 572
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total expenses 105,465 3,994 109,407 9,789 (2,098) 117,098
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income(loss) 9,423 (357) 0 9,066 1,450 (278) 10,238
----------- ----------- ----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest income 1,075 2 1,077 100 (190)(i) 987
Interest expense (1,707) (44) (1,751) (40) (1,791)
Other 12 12 15 27
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total other (620) (42) 0 (662) 75 (190) (777)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes 8,803 (399) 0 8,404 1,525 (468) 9,461
Provision for income taxes (2,253) 167 0 (2,086) (423)(j) (2,509)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before extraordinary
loss 6,550 (232) 0 6,318 1,525 (891) 6,952
Extraordinary loss (2,750) (2,750) (2,750)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) $ 3,800 $ (232) 0 $ 3,568 $ 1,525 (891) 4,202
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income per common and equivalent
share:
Before extraordinary loss $ 0.29 $ 0.27 $ 0.30
Extraordinary loss (0.12) (0.12) (0.12)
----------- ----------- -----------
Net income (loss) $ 0.17 $ 0.15 $ 0.18
----------- ----------- -----------
Weighed average shares outstanding 22,871 370(a) 23,241 23,241
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See notes to pro forma consolidated financial statements
22
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended June 30, 1996
(unaudited, in thousands, except share and per
share amounts, and in U.S. dollars)
<TABLE>
<CAPTION>
TSA/
TSA Grapevine Pro Forma Grapevine TXN Pro Forma Pro Forma
Historical Historical Adjustments Combined Historical Adjustments Combined
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Software license fees $ 55,614 $ 590 $ $ 56,204 $ 1,263 $ (837)(e)$ 56,630
Maintenance fees 25,786 103 25,889 2,400 (584)(e) 27,705
Services 25,778 3,481 (405)(d) 28,854 3,755 (193)(e) 32,416
Hardware, net 3,279 3,279 141 (81)(e) 3,339
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenues 110,457 4,174 (405) 114,226 7,559 (1,695) 120,090
----------- ----------- ----------- ----------- ----------- ----------- -----------
Expenses:
Cost of software license fees:
Software costs 13,516 433 13,949 859 (918)(e) 13,890
Amortization of purchased
software 2,356 2,356 82 (f) 2,438
Cost of maintenance and services 27,245 1,753 (405)(d) 28,593 4,877 (61)(g) 32,632
(777)(e)
Research and development 10,944 237 11,181 11,181
Selling and marketing 23,594 988 24,582 656 (2)(g) 25,236
General and administrative:
General and administrative costs 18,226 641 18,867 429 (3)(g) 19,293
Amortization of goodwill and
purchased intangibles 452 452 152 (h) 604
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total expenses 96,333 4,052 (405) 99,980 6,821 (1,527) 105,274
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss) 14,124 122 0 14,246 738 (168) 14,816
----------- ----------- ----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest income 1,580 1,580 80 (120)(i) 1,540
Interest expense (145) (37) (182) (2) (184)
Other (180) (180) 23 (157)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total other 1,255 (37) 0 1,218 101 (120) 1,199
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes 15,379 85 0 15,464 839 (288) 16,015
Provision for income taxes (6,250) (35) (6,285) (220)(j) (6,505)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) $ 9,129 $ 50 $ 0 $ 9,179 $ 839 $ (508) $ 9,510
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income per common and
equivalent share $ 0.34 $ 0.34 $ 0.35
----------- ----------- -----------
----------- ----------- -----------
Weighted average shares outstanding 26,658 370 (a) 27,028 27,028
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See notes to pro forma consolidated financial statements
23
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Note 1: The unaudited pro forma consolidated financial statements reflect the
following adjustments:
ADJUSTMENTS RELATED TO THE GRAPEVINE SHARE EXCHANGE:
(a) Adjustment to reflect the combination of TSA and Grapevine
Stockholders' Equity accounts.
(b) TSA was formed on November 2, 1993, therefore, there were no results
of operations for TSA for the year ended September 30, 1993.
(c) Includes results of operations of TSA for the period from inception
(November 2, 1993) through September 30, 1994.
(d) Adjustment to eliminate revenue and expenses associated with
Grapevine services provided to TSA.
ADJUSTMENTS RELATED TO THE TXN PURCHASE:
(e) Adjustment to eliminate royalties paid by TXN to TSA.
(f) Adjustment to reflect additional amortization of purchased software.
(g) Adjustment to reflect reduction in depreciation expense related to
assets not acquired by TSA.
(h) Adjustment to reflect amortization of goodwill.
(i) Adjustment to eliminate interest earned on cash used to pay purchase
price.
(j) Adjustment to increase provision for income taxes arising from
inclusion of the results of TXN's operations.
24
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- --------------------------------------------------------------------
2.09* Stock Exchange Agreement by and among the Company, Grapevine Systems,
Inc. and certain principal shareholders of Grapevine Systems, Inc.,
dated as of July 15, 1996
23.05 Consent of Deloitte & Touche LLP
____________________
* Incorporated by reference to the exhibit of the same number to the
Registrant's Registration Statement No. 333-09811 on Form S-4.
<PAGE>
Exhibit 23.05
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement on
Form S-8 No. 333-2592, pertaining to the 1996 Stock Option Plan of
Transaction Systems Architects, Inc., the Registration Statement on Form S-8
No. 333-2594, pertaining to the 1996 Employee Stock Purchase Plan of
Transaction Systems Architects, Inc., the Registration Statement on Form S-8
No. 33-93900, pertaining to the 1994 Stock Option Plan of Transaction Systems
Architects, Inc., and the Registration Statement on Form S-4 No. 333-09811 of
our report dated February 9, 1996 on Grapevine Systems, Inc.'s financial
statements as of December 31, 1994 and 1995 and for each of the three years
in the period ended December 31, 1995 appearing in this Form 8-K of
Transaction Systems Architects, Inc.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
August 21, 1996
